Updated: Dec 17, 2019
So what exactly is a Santa Rally?
It is the phenomenon that equity markets rally running up to Christmas and the New Year.
What are the reasons behind the Santa Rally?
Quite why this should occur around this time of the year is unclear, but here are some of the many theories on what could actually cause the Santa Rally;
It has happened on so many occasions the expectation of investors creates higher volumes of buyers to sellers helping stock prices rise
Private Clients and Fund managers are reviewing their current portfolio before the holidays start and positioning themselves ready for the New Year creating further volume.
In the actual holiday period whilst institutions and private clients are not as active, a market with very low volumes only takes a few more buyers and it can have a big impact on the movement of prices.
When is the best time to start buying?
We decided to analyse the entire month of December, over more than twenty years to see an optimum time to buy. Remarkably the first two weeks of December generally saw a negative return although there were a few exceptions.
Our analysis shows that waiting until mid-December gave a better return. In fact there were only 5 occasions during the last 22 years when the returns between 15th and 31st Dec were negative. Which left 17 years of positive returns which is 77% of the time with an average return of 2.4% across the entire 22 years for the last few days of the year. The best years being 1998 and 2015 with returns of over 6% and the worst being 1990 with a loss of around 1.2% and last year giving a negative return of just under 1%.
We all know past performance is no guarantee of future results, however so far in December the FTSE has fallen around 125 points – is this the derailing or the ramp??
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